An eye opening read on the lower income consumer/Other good stuff

There were two retail earnings conference calls over the past few months that really stood out to me and reflected the plight of many lower income consumers. One was in June (and will be updated next week with fresh earnings) when Casey's General Stores, an owner/operator of convenience stores in the Midwest, said its lower income shoppers were more buying fountain soda rather than a can or bottle in order to save some money. The other was what Dollar General said yesterday about its lower income consumer, which makes up a majority of their customers. 

From Dollar General:

“Same store sales increased .5% during the quarter, which was below our expectations. The increase was driven by a 1% growth in customer traffic and was partially offset by a .5 point decline in average transaction amount, which was driven by lower average unit retail price per item. The comp sales increase was driven entirely by the growth in our consumable category as customers continue to focus their spending on the items they needed most for their families. This growth was partially offset by declines in our seasonal home and apparel categories.”

“From a monthly cadence perspective, same store sales growth was strongest in June before turning negative in July. Notably, the three softest comp sales weeks of the quarter were the last week of each of the calendar months. This pattern suggests that our customers are less able to stretch their budgets through the end of the month. With that in mind, as well as our continued softness in discretionary sales in our own customer data and survey work, we believe the softer than anticipated sale performance in Q2 is at least partially attributable to a core customer that is less confident of their financial position.”

And a deep dive on their customers, “I want to provide some additional context around what we’re seeing and hearing from our customers. The majority of them state that they feel worse off financially than they were six months ago as higher prices, softer employment levels and increased borrowing costs have negatively impacted low income consumer incentive. As a result, our core customer who contributes approximately 60% of our overall sales comes predominantly from households earning less than $35,000 annually.

Inflation has continued to negatively impact these households with more than 60% claiming that they have had to sacrifice on purchasing basic necessities due to the higher cost of those items, in addition to paying more for expenses such as rent, utilities and healthcare. More of our customers report that they are now resorting to using credit cards for basic household needs and approximately 30% have at least one credit card that has reached its limit. And in our latest survey, 25% of our customers surveyed noted they anticipated missing a bill payment in the next six months.

While middle and higher income households are seeking value as well, they don’t claim to feel the same level of pressure as low income households."

From Burlington Stores: